About this Guide
This best practice guide is designed to help merchants understand how authorization reversals work. The guide will help merchants to understand how authorization reversals are used to help reduce fraud, reduce disputes, ensure compliance and provide a better service to customer. This document is built around interpretation of MasterCard and Visa best practices and code of conduct related to authorization reversals.
A financial transaction consists of the initial authorization message, which typically results in funds being debited from a consumer’s account, or reducing the “open to buy” for credit transactions, followed by a settlement message, which finalizes the amount owing to the merchant, reflecting any adjustments after the initial authorization. This two-tier message system is particularly important for card-not-present merchants, where the value of a purchase is more likely to be adjusted after the initial authorization than typical card present transactions.
MyGate also supports full and Partial Reversals for all acquirers and card types that support authorization reversals. These reversals are a financial message sent to the acquirer that indicate that the merchant will not be capturing / settling the transaction and the card issuing bank can release any hold that they have placed on funds. A merchant can see if MyGate has processed an authorization reversal from within the transaction report in the MyGate Web Console.
Authorization reversals are an important customer aspect of MasterCard and Visa transactions. To avoid unnecessary holds on customer’s deposit accounts, or reduce “open to buy” on credit cards, the associations require most merchants to submit an authorization reversal or partial reversal of a card-not-present transaction within 72 hours of the initial authorization if one of the following occurs:
- The customer elects not to complete the transaction
- The authorization request was submitted in error
- The final transaction amount is less than the authorization amount (i.e. submit an authorization reversal for the difference)
Note: Settlement must occur within 10 days of authorization for all merchants except Travel and Entertainment segments, which must clear within 20 days of authorization regardless of transaction date.
Scenario 1: Transaction Processed Twice
A customer orders goods online from a website but erroneously submits the transaction twice. Realizing his error, he emails the merchant and cancels one of the transactions. While both transactions will have been authorized; the merchant is required to send an authorization reversal within 72 hours for the transaction which will no longer be completed.
Scenario 2: The final transaction amount is less than the authorization amount
If the customer orders four books for a value of $100, the merchant would process an authorization for US$100. After reviewing stock the merchant realizes they only have 3 books. The merchant would need to process a partial authorize reversal of the value of the book not in stock. If the merchant had an authorization for $100 and only wanted to collect $70 then they would process a capture of $70 and process and partial authorization reversal of $30. It is very important for the merchant to get the adjustment out quickly, to maintain customer confidence.
Authorization best practices
The benefit of supporting authorization reversals is that the merchant restores the cardholders’ available
balance, which enables them to potentially make another purchase at merchant store.
- Establish clear communication to the customer at the time of purchase about when you are authorizing purchases will minimize the risk of surprises, confusion and any risk that there are insufficient funds available.
- Communication to the customer that the transaction has been settled as soon as possible after the authorizations, either matching the authorization amount or reflecting adjustments to the authorization amount. This improves the customer’s experience, reduces confusion and ensures merchants are paid quickly for goods/services purchased.
- When the authorization amount and settlement differ, send communication to customer explaining what the total amount paid was, and track the adjustments.
Do all issuers support authorization reversals?
Currently, not all issuers support authorization reversals. This means that in some cases when you process an authorization reversal that the authorized amount will not immediately be reversed. Most issuers in the North America have the ability to process authorization reversals where other continents this is lagging behind. What must I do if the Cardholder says the authorized funds have not been reversed?
Scenario 1 – Issuer Supports Authorize Reversals Requests
Unfortunately, many banks still do not release authorized funds as soon as an authorization reversal request is received. The reversal may take up to 48 hours.
Scenario 2 – Issuer does not support Authorize Reversal Requests
In the case where the customer’s funding is held by the bank after a reversal has been issued, there is simply nothing further that neither a merchant nor the payment gateway can do to release the funds being held. The issuer system will be set to automatically reverse the authorization according to their expired period set, which can be up to 7 days. In this scenario, it is best for the customer to contact their bank directly and request the authorization be reversed.